Houston Exploration Acquires Additional Interests in Gulf of Mexico

The Houston Exploration Company has acquired additional working interests in eight offshore producing blocks from KeySpan Energy Exploration & Production LLC, a subsidiary of KeySpan Corporation, for $26.5 million in cash. Estimated acquired proved and probable reserves are 18.6 Bcfe and increase the Company's current net production by approximately 15.0 MMcfe/d and its offshore lease holdings by 11,100 net acres. The acquisition closed on October 11, 2002, as was funded through the Company's operating cash flow and existing credit facility as part of its $250 million capital budget for 2002.

The acquired working interests are in specified properties located in the Central and Western Gulf of Mexico that KeySpan had developed with Houston Exploration under a joint exploration agreement which terminated at the end of 2000. Under the terms of the acquisition, Houston Exploration purchased KeySpan's working interests which range from 11.25% to 45.0% in 17 producing wells located in OCS Blocks East Cameron 81 & 84, Vermilion 408, High Island 115, Galveston 190 & 389, Matagorda Island 704 and North Padre Island 883.

KeySpan will retain its 45% working interest in OCS Blocks South Timbalier 314 & 317 that are currently under development as well as its 45% working interest in Mustang Island 725 & 726, assets that remain in the original joint venture and which are operated by Houston Exploration.

"We are pleased with the opportunity to acquire KeySpan's interests and increase our position in these proved producing properties located in our offshore core area," said William G. Hargett, President and Chief Executive Officer of Houston Exploration. "Our formation of an offshore exploration drilling joint venture in September of this year has freed up funds from our 2002 budget and allowed us to effectively redeploy the capital to acquire known production and reserves while still retaining the upside potential of our exploration program. The transaction also benefits KeySpan by monetizing a portion of its investment while still maintaining its interest and potential upside in the oil production at South Timbalier scheduled for start-up by year end and in future gas production at Mustang Island."

Charles W. Adcock, Senior Vice President and General Manager - Offshore Division for Houston Exploration added, "This acquisition of proved and largely developed gas production at an attractive price provides the Company with immediate cash flow, rapid payout and further upside opportunity. Our existing working interests in and overall familiarity with these properties allow for simple integration into our operations with no additional G&A costs."


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